A Case of Feeding One Family Well in Munster, Indiana

Given CFS Bancorp's dangerously thinning equity—fallen from $258M to $103M in the 14 years since the bank came public—can it really hope to do any better than be rescued by a sale? After years of feeding prior management at the expense of stakeholders, and constantly buying stock back at multiples of today's price, this anorexic bank has run out of room to do anything else. Someone, please, bring in the cheese and put an end to the starvation!

Disclosure: As of this posting, I own shares of CITZ and may subsequently either dispose of them or purchase more.

Prospective Buyers

BMO Financial Group, Toronto, Canada (BMO)

Fifth Third Bancorp, Cincinnati, OH (FITB)

First Midwest Bancorp, Itasca, IL (FMBI)

Horizon Bancorp, Michigan City, IN (HBNC)

Financial Snapshot(as of 3/31/2012)

Total assets:

$1.170B

Tangible book value per share:

$9.66

NPAs to assets:

6.3%

Price to book:

56%

Market cap:

$57.8M

Dividend yield:

0.7%

Trailing 12-month return on assets:

- 0.9%

Trailing 12-month return on equity:

- 0.3%

The Cast

Robert Ross, Chairman

Daryl Pomranke, President, CEO, COO

Jerry Weberling, Executive VP, CFO

Red Flags

CITZ hasn't delivered an adequate return on assets or equity since going public in 1998, achieving at best the meager "high" of 5.7% return on equity in 2007, a year when they were loading up on risky real estate loans that would later come back to haunt them.

While they've declined from their peak of $86M at year end 2010, CFS Bancorp's NPAs are still a hefty $65.7M, a high 10.1% of loans and REO, and up $1M from last quarter, in spite of $1.7M in chargeoffs.

CFS Bancorp's loan loss reserve is just $11.7M, a paltry 15.9% of NPAs. In contrast, Horizon's reserves to NPAs are 88%, Fifth Third's are 55%, and First Midwest's are 48%.

Since their mutual conversion in the summer of 1998, CITZ shareholders' equity has declined from $258M to $103M.

Prior management cost shareholders an estimated $127M, when Chairman Tom Prisby fired his brother, President James Prisby, with a $1M severance. Why? For suggesting it was in the bank's best interest to sell to Bank Financial (BFIN) in 2004, when book value was $13 and a premium to book of 25% or more was predictable.

Former Chairman Tom Prisby, resigned in December 2011, only after receiving $1.2M severance, negotiating a nice severance for his daughter, and paying his son nearly $1M to "decorate" bank branches.

1 comment
:

Wow! CITZ reported a very decent quarter. Although ROA and ROE ticked down slightly, and they're still paying the former Chairman $100,000 per month, the Company reduced NPAs by 24% to a much better 4.8% of assets. The Allowance for Loan Losses improved to 34% of NPAs from 23%. CITZ managed to report $0.12 in profit in spite of a healthy $1,160,000 provision and $1,074,000 in OREO expenses running through the Income Statement. One can only conclude that new management seems to be turning the ship around. Book value is now $9.94 per share.

After years of false promises of better performance from the departed Thomas Prisby its nice to see President Pomranke come thru on his prediction last quarter of reduced NPA's.